Analys från DailyFX
An AUD/NZD Long Entry with a Surprise Twist
Talking Points:
- Multi-Trend-Line Weekly Downtrend
- Key Support Zone for Buying AUD/NZD
- The Twist: Ignore the First Entry Signal
Whenever a trend line breaks, the expected move is often a retest of the same recently broken trend line. However, occasionally, the break is so clean and clear that the retest may occur a considerable distance from the initial trend line, and this may well be the case right now in AUDNZD.
As shown below, the weekly chart is sporting a multiple-trend-line downtrend, which has been accelerating ever since it began in 2011. This is worth bearing in mind, as it means that taking a long in this environment goes against the larger trend. Nonetheless, we will discuss a few reasons why it may be worth considering.
Guest Commentary: Multiple-Trend-Line Downtrend in AUD/NZD
The daily chart below sports a newly broken trend line with momentum on its side. In cases such as these, the move may already be underway, and a ”retest” of the broken trend line is unlikely to occur near the actual line. As a result, it is wiser to analyze support levels that are closer to the current price action, which we’ll soon do by looking at the smaller time frames.
Most importantly on the daily chart, however, is that the bias is long because a clear break of one trend line usually brings a higher-order trend line into play. Of course, price may move sideways until it bumps into it, but the most optimistic scenario in this case would be for price to head straight up for approximately 300 pips before encountering resistance.
Guest Commentary: Daily Trend Line Break for AUD/NZD
The four-hour chart below shows a very nice confluence of support at the marked zone. This area is combination of previous horizontal levels and a clear declining parallel channel. The exact zone is 1.0675-1.0733, which is 58 pips deep and acceptable as a potential risk area when compared to the 90 pips that stand between price and even the top of the declining channel.
Guest Commentary: Confluence of Support on 4-Hour Chart of AUD/NZD
Although this trade would be perfectly acceptable on the four-hour chart, a narrower risk area is always preferred, which is why we continue lower and examine the hourly chart as well.
The move on the hourly chart looks more disconcerting, however, with a distinct disadvantage to this trade displayed in the long bearish candlestick. This suggests that bears are still strong in the market, and it may even mean that the first of any reversal signals within the key support zone may fail.
Guest Commentary: Distinct Disadvantage on AUD/NZD Hourly Chart
In this scenario, the support zone is still valid, but given the countertrend nature of this trade on the weekly chart and the bearish momentum on the hourly chart, it is best to be especially conservative when trading this set-up. Thus, traders would be well advised to treat the first trigger on the hourly chart as suspect and stand aside. Some patience, however, should yield a second, higher-probability entry trigger.
The usual suspects—pin bars, bullish engulfing patterns, and/or bullish reversal divergence—will be valid entry signals for this set-up, and two or three tries (not counting the first trigger, which we’re discretionarily taking as being false and ignoring) should be made to get onto this move.
It may take a while for this pattern to play out, and while it would be frustrating if the first trigger worked, it is far better to be out of a trade and wishing to be in it than the other way around. Thus, with this trade in particular, patience is the most important factor.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.
Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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